Finance and incentives for net zero transition – Why EMDEs need carbon pricing

THERE needs to be a massive reallocation of economic resource towards financing net zero investments but it is not happening fast enough, especially in emerging markets and developing economies (EMDEs).

The financing paradox

We start with some money figures. Infrastructure sectors in EMDEs raised more than US$500 billion in loans and bonds in 2021. That’s from the financing side. In EMDEs, total investments in fossil fuel-based infrastructure (from oil and gas to conventional power generation) amounted to US$210 billion in 2021 and US$1.24 trillion since 2015. These are based on open-source data in the marketplace, and do not include spending obscured by non-market fiscal subventions or subsidies towards fossil fuel sectors (which are substantial). Conversely, total investment in renewable energy sources amounted to US$45 billion in 2021 only, and US$235 billion since 2015.

Furthermore, there is also a prevailing stance in many EMDEs that the state-owned companies continue to invest and hold fossil fuel-related infrastructure as critical national assets, while renewables like solar or wind power development are carried out by the private sector through public–private partnerships (PPPs). The financing advantage the state typically enjoys is thus not fully channelled towards renewables.